The commonwealth has an ambitious plan to expand broadband access, even to rural areas. There's one problem: Kentucky doesn't own a key component of the infrastructure.

Once the fiber is finished, Kentucky leaders say, it will connect the commonwealth to the world. That’s the thinking behind KentuckyWired, an ambitious public–private partnership to bring high-speed internet capacity to every corner of the state. The project showcases the promise and the risk in public–private partnerships. Some critics are calling it wishful thinking.

Highways were hard to build in Appalachia. Information highways are no less difficult to realize today. Abundant limestone and dolomite resources make burying fiber-optic cable nearly impossible in parts of Kentucky, especially in the eastern part of the state. Even stringing up broadband from poles is tough to do over mountains. And considering the sparse populations in some Kentucky regions—especially in East Kentucky—there’s no practical incentive to lure companies to make an intensive investment in infrastructure.

”I’ve had some of the major carriers sit in my office and say that they can’t make a business case for building in East Kentucky,” says Lonnie Lawson, president and CEO of the Center for Rural Development. “When the existing last-mile providers say they’re not going to do it, then you have to find ​​​​​​a different avenue of doing it.”​

The need is dire. Areas in East Kentucky have little-to-no broadband internet access, and the regional economy, already distressed by the demise of the coal industry, has found itself on the wrong side of the digital divide. Residents may be able to access Facebook or stream video, but to attract companies such as call centers, or build on successful e-commerce models, East Kentucky needs capacity.

“A lot of these jobs that you can create in other parts of the world, you couldn’t do in our region, just because you don’t have the infrastructure," Lawson says.

The solution, KentuckyWired, is a public–private partnership that seeks to build more than 3,000 miles of fiber-optic cable. The goal is a statewide “middle mile” network of dark fiber that reaches every county. KentuckyWired will provide broadband access directly to public schools and universities, state agencies, and other public institutions, while leasing the other half of its fiber to commercial providers.

Think of the middle mile network as a highway system, with exit ramps offering last-mile service—meaning access to broadband wherever Internet service providers link up subscribers.

KentuckyWired could transform deeply impoverished rural regions economically, such as East Kentucky, where U.S. Rep. Hal Rogers is one of the plan’s leading champions. The project would also streamline service in a state where broadband often doesn’t live up to federal standards, according to supporters. But the $327 million plan has hit a roadblock: Stakeholders don’t own the poles where the fiber is supposed to be installed.

By the terms set forth in the public–private partnership back in 2014, delays mean mounting costs for Kentucky taxpayers—a challenge that could undermine support for the network.

”Kentucky is committed to completing this project,” says Phillip Brown, executive director of the Kentucky Communications Network Authority, the state agency launched in 2014 to oversee KentuckyWired. “We’ve had a lot of scrutiny, which is understandable, over the last couple of years.”

To date, KentuckyWired has built a bit more than 600 miles of fiber. However, the original plan, signed in late 2015 toward the end of former Kentucky Governor Steve Beshear’s administration, called for the whole network to be completed within a year. That schedule didn’t account for the time it would take to strike pole-attachment agreements with various municipal utilities, electric companies, and telecoms—about 70 in all. So far, the planners have secured agreements to use about 50,000 of the 59,000 poles they need.

In this KentuckyWired map, the red rings indicate the middle-mile network, while the blue lines show lateral fibers that extend broadband to reach every county. (KentuckyWired)

Kentucky taxpayers have already paid at least $7 million in penalties to the private partner in the KentuckyWired partnership as a result of those delays. While the commonwealth is down to three final negotiations, which could be completed before the end of February, conservative organizations like the Center for Individual Freedom have KentuckyWired in their crosshairs.

“The simple fact of the matter is that to terminate the project now would cost more than it will to finish the project,” Brown says.

The Kentucky hold-up exposes some of the problems with public–private partnerships, an increasingly important tool for local and state governments in building and financing infrastructure. There are two big categories of public–private partnerships: demand–risk partnerships and availability–payment partnerships. The difference is where the incentive falls.

In demand–risk partnerships, the private partner accepts all the risk that project revenues may not work out as planned. These are good for taxpayers, says Randal O’Toole, a senior fellow at the Cato Institute. With availability–payment partnerships, on the other hand, so long as the work is completed, the public partner is on the line for payments for the duration of the contract, whether the infrastructure is useful or not.  

“Once the contract is signed, you’re stuck with it, and if you as a public agency run into problems, you’re going to pay through the nose,” O’Toole says. “That’s really where a lot of cost overruns come in.”

So when officials in Glasgow, Kentucky, need a hard sell to convince them to allow KentuckyWired to attach to their poles, the entire project stalls. Late in January, the Glasgow Common Council voted to approve the initiative, meaning that planning, engineering, and construction can proceed. The decision followed months of deliberation and presentations before the Glasgow Electric Plant Board and City of Glasgow (pop. 14,594).

In another case, a pole-attachment agreement with AT&T was delayed by 212 days, according to Brown. All the while, the state still had to pay idle workers. Bringing broadband to all 120 counties in Kentucky means a lot of opportunities for bottlenecks. Throughout dozens of supervening events like these, the Kentucky public has been responsible for paying pentalties to its private partner, in this case, a consortium led by Macquarie.

“Candidly, part of the challenge for Kentucky with the contract that was negotiated, the Commonwealth assumed a lot of the risk for the project,” says Brown, who joined the agency in April 2017. “If the Commonwealth had wanted its contractors to hold the risk for dangers to the schedule, the Commonwealth could have said, ‘We don’t want this risk.’”

He adds, “In a lot of ways, we allowed the price to drive the schedule.”

There are other reasons why local governments might accept more than their share of risk. Availability–payment partnerships allow local governments to circumvent statutory debt limits. The practice grew popular in eurozone nations, where membership restricts national debts to a fixed percentage of GDP. As O’Toole explains, Italy built high-speed rail and other infrastructure projects via public–private partnerships, which put the debt on the books of private companies.

Denver pulled off the same trick with its $2 billion Eagle P3 to build new transit infrastructure, including the East Line that connects the city to the airport. City leaders in Washington, D.C., where public debt is limited by a 12 percent statutory cap, is looking at an availability–payment P3 to renovate its police headquarters, an expensive undertaking.  

Questions about oversight and community consent abound with public–private partnerships, especially as newly formed agencies, like the Office of Public–Private Partnerships (or OP3) in D.C., add a new factor to municipal procurements. But oversight is hardly a problem for KentuckyWired. Rather, it’s the opposite: The state has had to get buy-in from cities, counties, and utilities across the board.

KentuckyWired was born as a concept in East Kentucky, where Rogers, Lawson, and other leaders saw high-speed internet access as a gateway for a region that is suffering from a dying coal industry. Planners soon realized that they could build a backbone of middle mile broadband fiber for the entire commonwealth for not much more. The gains would be great—but so would be the delays, and the public–private partnership did not leave room for flexibility.

While the calendar and costs for KentuckyWired have changed as a result, the need for better internet access to fuel the economy hasn’t.

“The coal jobs have been drastically, drastically reduced,” Lawson says. “Even if there’s some level of coal jobs that remain, it will never be what it once was. You have to find other ways of putting people to work, or your best and brightest leave, and they never come back.”

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